James R | On 17, Oct 2019

Netflix’s subscriber growth has slowed just as the streaming giant is bracing for competition.

Netflix, which has been streaming for the best part of a decade now, has been leading the charge in changing viewing habits, disrupting both the film and TV industry in the process. This autumn, though, Netflix starts to see its first major competition, as Disney+ launches in the USA and Apple TV+ launches worldwide. American audiences will also be wooed by new streaming services HBO Max and NBC’s Peacock in the coming months, only fuelling the competition for eyeballs.

Netflix acknowledged the competition to shareholders in a letter announcing its third quarter performance.

“In our view, the likely outcome from the launch of these new services will be to accelerate the shift from linear TV to on demand consumption of entertainment. Just like the evolution from broadcast TV to cable, these once-in-a-generation changes are very large and open up big, new opportunities for many players,” CEO Reed Hastings wrote in the letter.

“Over the next 10 years, many streaming services will grow viewing as streaming replaces linear TV,” he added.

“We did well during the first decade of streaming. We’ve been preparing for this new wave of competition for a long time. It’s why we started investing in originals in 2012 and expanded aggressively ever since.”

The upcoming quarter is a strong demonstration of that investment and expansion, with the return of awards favourite drama The Crown for a third season, the launch of new fantasy epic The Witcher in a post-Game of Thrones world, Michael Bay blockbuster 6 Underground, Christmas animation Klaus and Oscar contenders The Two Popes, starring Anthony Hopkins and Jonathan Pryce, and The Irishman, Martin Scorsese’s landmark gangster drama starring Robert De Niro, Al Pacino and Joe Pesci.

The number of those series and films that are brand new, though, is also a demonstration of the challenge facing Netflix, which is about to go head-to-head with Disney’s arsenal of franchise-expanding content. The real test of Netflix’s staying power will be whether it can compete with familiar brands and characters with its own, homegrown creations.

Earlier this year, Netflix saw its subscriber growth slow, partly a reflection of its decision to raise prices to fund its programming push. It’s also an indication of how much audience appeal can vary depending on the strength of the content on offer.

“Since our US price increase earlier this year, retention has not yet fully returned on a sustained basis to pre-price-change levels, which has led to slower US membership growth,” admitted Hastings, although he noted that revenue growth has accelerated.

In total, Netflix added 6.8 million subscribers in the third quarter of the year, up 12 per cent year-on-year but lower than its 7 million forecast. While US growth slowed, though, international net additions totalled 6.3 million above its 6.2 million forecast. Over the full year of 2019, net additions is predicted to be 26.7 million, down from 28.6 million in 2018.

Despite the caution in Netflix’s outlook, though, there is also confidence, with Hastings arguing that the move from licensing second-run content (such as Friends and The Office) to Netflix’s own exclusive, original content is “working on the form of member viewing and engagement”.

Netflix has been increasingly working to evidence its pulling power in the last year by releasing selected statistics about viewing behaviour: Stranger Things Season 3, for example, was watched by 64 million account households in its first four weeks, the best-performing season to date. Unbelievable was watched by 32 million member households in its first 28 days, while Season 3 of La Casa de Papel (aka. Money Heist) became the most watched show on Netflix across its non-English language territories with 44 million households watching the new season in the first four weeks of release.

To date, Netflix has globally released 100 seasons of local language, original scripted series from 17 countries. With for over 130 more in 2020, that push towards localised programming to appeal to a diverse group of viewers is part of Netflix’s strategy to insure against competition – particularly when many of the new streaming rivals will be primarily based within the USA.

“We compete broadly for entertainment time,” insisted Hastings. “This means there are many competitive activities to Netflix (from watching linear TV to playing video games, for example). But there is also a very large market opportunity; today we believe we’re less than 10 per cent of TV screen time in the US (our most mature market) and much less than that in mobile screen time. The upcoming arrival of services like Disney+, Apple TV+, HBO Max, and Peacock is increased competition, but we are all small compared to linear TV.”

“While the new competitors have some great titles (especially catalog titles), none have the variety, diversity and quality of new original programming that we are producing around the world,” he added.

Time will tell whether Netflix’s streaming strategy can hold up against the shifting currents.

Add to Watchlist